Expanded Panama Canal not the only factor in LNG shipping demand

The expanded Panama Canal is causing dramatic changes in the gas trades and while this may generate significant headline figures, the effects on the shipping industry will still ultimately come down to global trade volume.

Speaking to Seatrade Maritime News on the sidelines of the Marintec China Senior Maritime Forum Conference, Drewry Maritime Research director Navin Kumar said: “The Panama Canal or any other trading route doesn’t have anything to do with the demand. It’s more about the cost.”

Kumar cited figures showing that the gas trades have been the sector most affected by the expansion of the canal. He showed that on the key US-Asia trade the next best alternative route would cost about 1.5 times more than to transport through the Panama Canal.

This has shown up in the operational figures as well, with transits of LPG carriers spiking from 449 in 2016 to 876 in 2017 year-to-September, while the corresponding numbers for LNG carrier transits were 17 and 163 respectively.

“What this tells us is the expansion of the Panama Canal has allowed VLGCs and the almost all LNG carriers to pass through the new locks and that is the reason for the significant rise in the number of transits and we’ll see even higher numbers from 2018 onwards because that’s when most of the LNG contracts from the US will come into play,” Kumar added.

In terms of the impact on the market, Kumar produced figures to show that based on contracted volumes of LNG, the expanded canal has reduced shipping demand by 34% because fewer vessels are needed due to shorter voyages.

However whether this will have an ultimate impact on shipping demand will depend on the cost of the cleaner burning fuel. “Transportation is really a very marginal cost in the overall supply chain of LNG,” Kumar elaborated, adding that if the gains from using the shorter route are marginal it can spur the trade.

“Demand for LNG will still come down to its price as well as the price of competing fuels,” he pointed out. And as a result the impact of the expanded canal on the LNG shipping market is limited.